As in any business, setting the export price correctly seems to be something simple, but it is one of the main problems that most smaller companies have when evaluating a potential foray into international markets, directly affecting the competitiveness of their products.
Most of the small and medium-sized companies that have the possibility of exporting for the first time, think that defining the export price is about converting the same price that you offer in the national market, into an international rate, based on the exchange rate . But thinking that way can lead you to failure faster than to getting new customers.
Setting the price is a strategic decision and although there is no single formula or method, there are some procedures that indicate what costs should be considered depending on the type of product and the conditions agreed with the buyer.
The first thing we must be clear about when we want to explore a new market is that our export prices do not consider VAT (value added tax). Unlike the amounts that are set in any national sale, to export the NET PRICE must be considered. From there, depending on the conditions of sale, in foreign trade the rules that define the negotiation between exporters and importers of goods, called INCOTERMS (International Commercial Terms), must be considered.
For example, EXW (Ex-Works) is applied when the exporter delivers the goods at its own facilities, and the buyer assumes the costs and all the logistics and transport operations to the destination market. That is, if the product is sold from the production factory or port of the country of origin, no extra cost should be incorporated.
In contrast, the FOB (Free On Board), the exporter assumes the costs and customs procedures for the goods transported by sea or river, until the product reaches the destination. That is, the customs agent's fees, the cost of inspections if applicable, such as the SAG for example, the consolidation of the cargo in the container, the collection of the entry deposit, the certificate of origin, among others. Finally, CIF (Cost Insurance and Freight), refers to transportation costs, but also the insurance of the merchandise traded.
As well as these, there are other factors called in acronyms, such as CIP, DAP and DDP that must be considered to set the price and that, basically, determine the responsibility of the parties in the transaction. Many times entrepreneurs do not know all these concepts or costs, they assume an estimated value or worse, they do not consider them and they affect the real margin of the operation, making the export process unattractive. neo trade, Consultants in International Business, reveals 5 keys to set prices to export, obtaining the maximum return.